Earlier on June 12, 2020, RBI has constituted an Internal Working Group (IWG) to review extant ownership guidelines and corporate structure for Indian private sector banks.
Reserve Bank of India on November 20 released a report on the internal working group (IWG) recommendations on private bank ownership and corporate structure.
Among other things, the report recommends promoter stake cap in long run -- 15 years -- be raised to 26 percent from 15 percent if paid-up voting equity share capital.
The IWG in its recommendations had also said that non-promoter shareholding may be capped at 15 percent of paid-up voting equity share capital for all shareholders.
"Large corporate/industrial houses may be allowed as promoters of banks only after necessary amendments to the Banking Regulation Act, 1949 and strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision," RBI said its report.
On the issue of Non-operative Financial Holding Company (NOFHC), the IWG recommended that they should continue to be the preferred structure for all new licenses to be issued for universal banks. While added that they should be mandatory only in cases where the individual promoters or promoting entities or converting entities have other group entities.
"Once the NOFHC structure attains a tax-neutral status, all banks licensed before 2013 shall move to the NOFHC structure within 5 years from the announcement of tax-neutrality," RBI statement said. It, however, added that banks licensed before 2013 may move to a NOFHC structure at their discretion.
The RBI's IWG said that the concerns with regard to banks undertaking different activities through subsidiaries or joint ventures or associates need to be addressed through suitable regulations till the NOFHC structure is made feasible and operational.
Also, those banks currently under NOFHC structure may be allowed to exit from such a structure if they do not have other group entities in their fold, RBI said.
Other key recommendations by IWG:
1) Large Non-banking Finance Companies (NBFCs), with an asset size of Rs 50,000 crore and above, may be considered for conversion into banks subject to completion of 10 years of operations and meeting due diligence criteria and compliance with additional conditions specified in this regard.
2) Track record of 3 years of experience as Payments Bank may be considered as sufficient for Payments Banks intending to convert to a Small Finance Bank.
3) Small Payments Banks and Small Finance Banks may be listed within ‘6 years from the date of reaching net worth equivalent to prevalent entry capital requirement prescribed for universal banks’ or ‘10 years from the date of commencement of operations’.
4) The minimum initial capital requirement for licensing new banks should be enhanced from Rs 500 crore to Rs 1000 crore for universal banks,
5) The minimum initial capital requirement for licensing new banks should be enhanced from Rs 200 crore to Rs 300 crore for small finance banks.Earlier on June 12, 2020, RBI has constituted an Internal Working Group (IWG) to review extant ownership guidelines and corporate structure for Indian private sector banks.